Portfolio return and standard deviation Jamie Wong is thinking of building an investment portfolio containing two exchange traded funds (ETFs). Jamie plans to invest $4,500 in Vanguard S&P 500 ETF (VOO) and $5,500 in Invesco QQQ Trust (QQQ). Jamie has decided to analyze some historical returns to get a sense for her portfolio's possible future risk and return. Six years of historical annual returns for each ETF are shown in the following table: a. Calculate the portfolio return, rp. for each of the 6 years assuming that 45% is invested in VOO and 55% is invested in QQQ. b. Calculate the average annual return for each ETF and the portfolio over the six-year period. c. Calculate the standard deviation of annual returns for each ETF and the portfolio. How does the portfolio standard deviation compare to the standard deviations of the individual ETFS? d. Calculate the correlation coefficient for the two ETFs. How would you characterize the correlation of returns of the two ETFs? e. Discuss any likely benefits of diversification achieved by Jamie through creation of the portfolio. a. The portfolio return for year 2014 is%. (Round to two decimal places.)
Portfolio return and standard deviation Jamie Wong is thinking of building an investment portfolio containing two exchange traded funds (ETFs). Jamie plans to invest $4,500 in Vanguard S&P 500 ETF (VOO) and $5,500 in Invesco QQQ Trust (QQQ). Jamie has decided to analyze some historical returns to get a sense for her portfolio's possible future risk and return. Six years of historical annual returns for each ETF are shown in the following table: a. Calculate the portfolio return, rp. for each of the 6 years assuming that 45% is invested in VOO and 55% is invested in QQQ. b. Calculate the average annual return for each ETF and the portfolio over the six-year period. c. Calculate the standard deviation of annual returns for each ETF and the portfolio. How does the portfolio standard deviation compare to the standard deviations of the individual ETFS? d. Calculate the correlation coefficient for the two ETFs. How would you characterize the correlation of returns of the two ETFs? e. Discuss any likely benefits of diversification achieved by Jamie through creation of the portfolio. a. The portfolio return for year 2014 is%. (Round to two decimal places.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Data table
(Click on the icon here in order to copy the contents of the data table below
into a spreadsheet.)
Year
2014
2015
2016
2017
2018
2019
Historical return
VOO
12.82%
1.11%
11.42%
22.31%
-4.32%
31.32%
QQQ
18.08%
9.78%
6.38%
32.27%
-0.31%
39.45%
- X
Transcribed Image Text:Portfolio return and standard deviation Jamie Wong is thinking of building an investment portfolio containing two
exchange traded funds (ETFs). Jamie plans to invest $4,500 in Vanguard S&P 500 ETF (VOO) and $5,500 in Invesco
QQQ Trust (QQQ). Jamie has decided to analyze some historical returns to get a sense for her portfolio's possible future
risk and return. Six years of historical annual returns for each ETF are shown in the following table:
a. Calculate the portfolio return, rp. for each of the 6 years assuming that 45% is invested in VOO and 55% is invested
in QQQ.
b. Calculate the average annual return for each ETF and the portfolio over the six-year period.
c. Calculate the standard deviation of annual returns for each ETF and the portfolio. How does the portfolio standard
deviation compare to the standard deviations of the individual ETFs?
d. Calculate the correlation coefficient for the two ETFs. How would you characterize the correlation of returns of the
two ETFs?
e. Discuss any likely benefits of diversification achieved by Jamie through creation of the portfolio.
a. The portfolio return for year 2014 is%. (Round to two decimal places.)
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